A trade venue is a location (either physical, virtual, or some combination of the two) where items, such as financial products, are bought and sold. Examples of trade venues include: stock exchanges, options exchanges, futures exchanges, and swap execution facilities. Financial products include, but are not limited to, securities, currencies, futures contracts, swap contracts, and options contracts. Trade venues that provide for the exchange of financial products (e.g., options exchanges) compete for order flow and an overall higher share of the order volume (i.e., liquidity) in the market. This competition for order volume has led trade venues to institute various features in an effort to gain competitive edge.
For example, historically the trading of financial products at trading venues was conducted through a process known as open-outcry trading. In open-outcry trading, market participants typically communicate verbally and/or visually with each other to indicate their willingness to buy and sell financial products. However, more recently some trade venues have been established that have no open-outcry trading, and instead trading is conducted through purely computer facilitated electronic communication. In these electronic exchanges market participants utilize computer based systems to transmit messages (e.g., quotes and/or orders) to conduct trading. Still other trade venues use a hybrid trading system that combines the features of open-outcry and electronic trading in a single exchange. The implementation of these different market models of trading is one way in which the trade venues have attempted to find competitive advantage and gain a greater share of liquidity.
Additionally, trade venues compete with each other for order volume through the use of, inter alia, trade fees and rebates. Trade fees are the fees charged by a trade venue to the market participants for executing an order. Rebates are incentives paid out by a trade venue to market participants for executing orders at a trade venue. Trade fees and rebates are analyzed by market participants when deciding to which trade venues to send order flow.
Several different types of trade fee and rebate structures are currently in use or have been used by trade venues. For example, some known fee structures include straight trade fee schedules, traditional trade fee schedules, and maker/taker trade fee schedules. According to a straight trade fee schedule, each market participant pays the same predefined trade fee for each trade executed at a trade venue.
According to a traditional trade fee schedule, each market participant pays a predefined trade fee for each order executed at the trade venue based on one or more properties of the order or the market participant. For example, trade fees may be set in a traditional trade fee schedule according to one or more of the following list, including but not limited to: the type of order (e.g., market maker, customer, professional, broker-dealer, etc.); the type of financial product (e.g., equity option contract, index option contract, future contracts, etc.); the symbol of a financial product (the trade fee for one equity option may be set higher than the trade fee for another equity option); the type of execution (e.g., open-outcry or electronic); and the cumulative volume of trades executed by a market participant.
Maker/taker trade fee schedules generally give a rebate to market participants that provide liquidity (i.e., “makers”), and charge a trade fee to market participants that take liquidity out of the market (i.e., “takers”). Thus, the maker/taker trade fee schedule differs from the straight and traditional trade fee schedules because under the maker/taker schedule only the “taker” pays a trade fee. However, in some implementations of a maker/taker fee schedule it is the “maker” that pays the fee and the “taker” that is given the rebate. While the determination of which order is the “maker” and which is the “taker” can be made in a number of different ways, it is possible to make the determinations based on the “book time” of the orders. More specifically, the order with the earlier book time is generally the “maker”.
One common feature of the prior art straight, traditional, and maker/taker trade fee schedules is that they are all predefined static schedules, which are incapable of accounting for the dynamic nature of the market.